Qantas has agreed to pay $120 million to settle allegations of misleading conduct over ticket sales on so-called “ghost flights”.

The airline and the Australian Competition and Consumer Commission announced the proposed settlement in simultaneous media releases early on Monday.

Under the agreed settlement, Qantas will spend $20 million on a remediation program for more than 86,000 affected passengers. Domestic ticket-holders will receive $225, while those who had international fares will get $450.

In addition, and subject to the approval of the Federal Court of Australia, Qantas will pay a $100 million civil penalty.

Qantas said it would start payouts to passengers ahead of any court approval.

“Today represents another important step forward as we work towards restoring confidence in the national carrier,” Qantas Group CEO Vanessa Hudson said.

“We thank the ACCC for their cooperation in reaching this outcome, which means we can compensate affected customers much sooner than if the case had continued in the Federal Court. We are focused on making the remediation process as quick and seamless as possible for customers.”

The settlement comes after the ACCC launched court action against the national carrier last year, claiming it advertised tickets for 8000 flights that had already been cancelled and that it engaged in false, misleading or deceptive conduct by selling the tickets for an average of more than two weeks.

It alleged Qantas failed to notify existing ticket-holders for 10,000 flights that had been cancelled for an average of 18 days, and up to 48 days, between May and July 2022.

Qantas cancelled about 15,000 flights – or about a quarter of its itinerary – between May and July 2022, the watchdog said.

Qantas had vowed to fight the legal action, saying that while it “fully accepts it let customers down during the post-COVID restart”, including with high cancellation rates, the ACCC case ignored the realities of the aviation industry.

It said the case ignored a key condition that applied to ticket sales – that no airline can guarantee flights won’t be delayed due to the nature of travel, including weather and operational issues.

As part of Monday’s settlement, the airline admitted the misconduct actually ran from May 21, 2021, until August 26, 2023, affecting tens of thousands of flights.

The ACCC said on Monday it hoped the penalty would “send a strong deterrence message” to other companies.

“We are pleased to have secured these admissions by Qantas that it misled its customers, and its agreement that a very significant penalty is required as a result of this conduct. The size of this proposed penalty is an important milestone in enforcing the Australian Consumer Law,” chair Gina Cass-Gottlieb said.

“Qantas’ conduct was egregious and unacceptable. Many consumers will have made holiday, business and travel plans after booking on a phantom flight that had been cancelled.”

The ACCC had previously flagged it would seek a penalty of as much as $250 million in the case.